Had manufacturing not collapsed in the wake of the closure of the Ford car plant in 2016 and the closure of Holden in October this year, Melbourne's GDP would have been 0.6 points higher, eclipsing Sydney's at 3.4 per cent.

The capital city and regional GDP estimates are prepared each year by urban economist Terry Rawnsley of SGS Economics and Planning, who used to produce the national and state estimates for the Bureau of Statistics.

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Living standard are sliding in Melbourne.Credit:Vince Caligiuri

Manufacturing now accounts for only 6 per cent of Melbourne's economy, down from 16 per cent in 1997, just pipping Sydney's 5 per cent.

"More than 266,000 jobs have been created since we were elected in 2014, with around 60,000 in regional Victoria," he said. "That's more than anywhere else in the nation for that period."

Financial services is now far and away Melbourne's most important industry, accounting for 12 per cent of economic output, followed by professional services, accounting for 9 per cent. The next most important industries are healthcare and construction, each worth 7 per cent.

The biggest contributors to Melbourne's economic growth during 2016-17 were the professional, scientific and technical industries, construction and wholesale trade, and healthcare and social assistance.

Adjusted for Melbourne's extraordinarily high population growth, GDP per capita fell in 2016-17, slipping 0.1 per cent. GDP per capita is a rough measure of living standards. It has fallen in six of the past 10 years. Brisbane, Perth and regional Western Australia were the only other parts of the country in which GDP per capita went backwards.

"Melbourne is in transition," Mr Rawnsley said. "Car plants have been closing while professional services and healthcare are growing. The good news is that manufacturing is levelling out. Things should improve from here on."

The good news is that manufacturing is levelling out. Things should improve from here on.

Terry Rawnsley, GSG Economics and Planning

Asked why Australians should be flocking to Melbourne when living standards were falling, Mr Rawnsley said they were falling faster in Brisbane and Perth.

"They are economic refugees, and Melbourne is a lot more affordable than Sydney," he said. "If you want a big city with a vibrant economy, but you don't want to pay Sydney prices, you come here."

"People are coming for the lifestyle and jobs, even though the income they generate is failing to match population growth."

Melbourne's economy is Australia's second-hottest after Sydney. SGS suggests that to rein in Sydney's economy the Reserve Bank would have to push up the cash rate from 1.5 per cent to 3.5 per cent. To rein in Melbourne's it would need to push it 2.25 per cent. In Brisbane, Perth and Adelaide, the cash rate would have to be pushed down to 0.25 per cent.

Regional Victoria had a bumper year, recording economic growth of 5.8 per cent. A strong wheat crop and good year for other products including cheese boosted agricultural production almost 20 per cent. Manufacturing climbed on the back of related work at Shepparton canneries.

Combined, Australia's two biggest cities now account for 42 per cent of Australia's economic output, and a near-record two thirds of Australia's economic growth.

Mr Rawnsley said Sydney and Melbourne were likely to become even more dominant.

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"The knowledge-intensive industries in which we are globally competitive are best located in big dense cities with good access to highly skilled labour," he said.

"Australia is unique in having a population of 25 million people and two cities of roughly 5 million each. Those cities are likely to become ever more important at the expense of the other capitals and regional centres like Bendigo and Ballarat."